MOSCOW, July 1 (Reuters) – President Vladimir Putin defended
the long-term supply deals under which Russia exports its gas on
Monday, and warned that abandoning them would undermine global
energy security.

Putin won the backing of strategic allies at a summit of gas
exporters in an ornate hall in the Kremlin, but his speech laid
bare divisions over the challenge to its pipeline gas supplies
posed by more flexible liquefied natural gas (LNG).

The Russian leader has, since he first became president in
2000, deployed state gas export monopoly Gazprom to
project geopolitical power, helping to restore prestige lost
with the Soviet Union’s collapse.

But, with a growing flotilla of tankers supplying LNG to
world markets, the long-term export contracts that tie the price
of Russian gas to oil and that set minimum purchase requirements
for buyers have come under increasing threat.

Putin said that loosening the oil-price link or scrapping
the ‘take-or-pay’ requirement would lead to higher costs, not
only for producers who need price security to justify long-term
investments, but also for buyers.

“What we are talking about, above all, are attempts to
dictate economic terms that are unacceptable to producers of gas
delivered by pipeline,” Putin told leaders from the 13-member
Gas Exporting Countries Forum (GECF).

“Unfortunately, the advocates of such a policy do not
understand that abandoning the fundamental principles of
long-term contracts would not only inflict a blow on gas
producers but also bring with them significant costs.”

He added: “In the final analysis, this would undermine the
energy security of buyers.”

Gazprom’s loss of pricing power in Europe, which accounts
for more than half its gas revenues, has driven down its market
value to $78 billion from a peak of $360 billion in 2008.

Analysts say supply fundamentals – gas is an abundant
commodity while oil is relatively scarce – will make it
difficult for Russia to uphold an export-pricing model that
dates back to the Soviet era.

CONDITIONAL SUPPORT

Putin, who began his third spell as president in May last
year, has set out to defend Russian interests strongly on the
world stage as he tries to reassert his authority following the
biggest protests since he first rose to power.

He won support on gas pricing from Venezuelan President
Nicolas Maduro and Bolivia’s Evo Morales, while Algeria also
backed Russia’s preference for its long-term contract model.

But major LNG suppliers were frank in stating alternative
positions, with Qatari Energy Minister Mohammed Saleh al-Sada
saying each member of the group “has its own point of view on
the development of the sector.

“We should remember that our pricing policy should also be
derived from the interests of consumers, not only of producers,”
al-Sada told the summit, which was broadcast live on Russian
television.

The GECF, holding its second summit, says it members control
80 percent of world gas output and 70 percent of LNG production.

In reality, many of its members are net importers, leaving
Russia and Qatar as the biggest players on international
markets. They face challenges from the United States, now
self-sufficient in gas, and Australia, which is expanding into
LNG.

Founded more than a decade ago, the GECF drew comparisons
with the Organization of the Petroleum Exporting Countries
(OPEC) but failed to show the type of cohesion that has made the
oil export cartel capable of influencing global crude markets.

Putin’s remarks showed little appreciation for the positions
of other members, reinforcing the impression that the GECF –
headed by Russia’s Leonid Bokhanovsky – is viewed by Moscow as a
vehicle for lobbying its own interests.

Also hindering cooperation are simmering tensions between
Russia and some Gulf Arab gas producers over Putin’s support for
President Bashar Al-Assad in Syria’s civil war. Qatar supports
the Syrian opposition.

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